Private Limited Liability entities

There are two types of Private Limited Liability entities in South Africa – the Private Limited Company (PTY) and the Close Corporation (CC). The latter can no longer be incorporated, but existing CCs may continue to do business in South Africa.

The Private Limited Company is known as a proprietary limited company, abbreviated to ‘Pty’. A Pty cannot trade its share on the open market and the name must end with the words ‘Proprietary Limited’ or ‘(Pty) Ltd’. It is governed by the Companies Act 71 of 2008 and has the following characteristics:

Shareholders – A minimum of one shareholder is required whose details are filed with the CIPC. Corporate shareholders are permitted. Membership is limited to a maximum of 50 shareholders.

Directors – A minimum of one director is required and full details of these must be filed with CIPC. No corporate directors are permitted.

Meetings – An annual general meeting must be held within 18 months of the company’s incorporation. Subsequent AGMs are to be held not later than nine months after the end of each ensuing accounting date (the end of the Financial Year) but still within 15 months of the date of the preceding annual general meeting.

Annual Reporting – When preparing Annual Financial Statements, South African companies fall under three categories depending on their Memorandum of Incorporation and Public Interest Score: statutory audit, independent review or compilation. The Annual Financial Statements must be completed within six months of the year-end. Companies are also required to file an annual return each year with CIPC, which ensures that company details, including the list of active and past directors, are maintained and updated with the company registrar.

Taxation – South African taxation changed from source-based to residency-based in 2001. There are three main types of tax applicable to companies:

Normal tax, which is charged at 0% of taxable income

Small Business Corporation tax, which is charged on a scaling rate – from zero up to 28% – depending on the amount of taxable income

Turnover Tax (which applies to micro-businesses) is charged on a scaling rate – from zero up to 3% – based on the amount of turnover.

There is also a Dividends Withholding Tax of 20% on dividends distributed to certain shareholders. Although this is a personal tax, the company distributing the dividend is required to withhold these taxes on behalf of the shareholder.

Restrictions on name and activity – There are restrictions on the use of certain words in the name of a company. Specific permission has to be obtained prior to incorporating the company. Words that are deemed to be “undesirable” or which are “calculated to deceive or mislead the public” are prohibited.

Registered office – A company must maintain a registered office address within the jurisdiction of incorporation and, depending on the Memorandum of Incorporation or Public Interest Score, may require an auditor.